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General liability insurance is a type of insurance that covers business owners who are not necessarily specifically covered under other types of coverage. This type of coverage was originally created to cover the cost and financial liabilities associated with injuries or damages caused by employees, subcontractors, independent contractors, and property damage as well as events such as lawsuits arising from these incidents.
Insurance companies use general liability insurance class codes to categorize risk depending on the job that a firm undertakes. Every company faces different kinds and levels of risk. The class codes assist insurance providers in assigning a proper premium amount, offering the proper sort of coverage, and determining any required exclusions.
What Are General Liability Class Codes and How Do They Work?
An insurance company may utilize any catalog of class codes, such as the Insurance Services Office (ISO) or the North American Industry Classification System (NAICS), to achieve the same thing. They issue a number to your firm based on its industry and kind of work, and each number has a risk premium attached to it. This is used by the insurance provider to determine how much to charge for your firm’s general liability policy.
The ISO, for example, lists the following broad sample categories:
- Mercantile: 10000-19999
- Miscellaneous (40000-49999)
- Manufacturing or Processing (50000-59999)
- Building or Premises (60000-69999)
- Contracting or Servicing (90000-99999)
When we look at the NAICS, we find codes like:
- Agriculture 11
- Construction 23
- Retail Trade 44
- Knowledge 51
- Food and Beverage Services 72
These broad categories are then subdivided into smaller, more detailed categories. A bed and breakfast inn, for example, would be classed as code 721191 in NAICS Group 72 (Accommodation and Food Services), whereas a caterer would be classified as code 722320. These subgroupings aid in identifying the distinct hazards associated with that particular sort of firm since, although they are both in the same industry, they have different concerns.
Visit one of the categorization sites, such as NAICS, to determine your company’s class code. Begin by looking for the general industry in which your company operates, then browse through the subcategories to discover a description of what your company does.
General Liability Class Codes
Both sorts of companies in the above instances come under the umbrella of Accommodation and Food Service. However, when comparing what a bed and breakfast performs to what a catering firm does, the risks involved in their everyday operations are vastly different.
A bed and breakfast would be worried about dangers such as someone tripping and falling on the premises, but a caterer would be more concerned about the risk of foodborne disease. Both may happen to both sorts of businesses, but the likelihood of one occurring is higher for a given business.
Understanding class codes is also necessary for comprehending their exclusions. If your business is assigned to one class code, it may not be covered if it does work for a different class code. If your firm is classed as a painting company, for example, you may not be protected from accidents that occur while working as a general contractor. Providing your insurance provider with a list of all activities that your company engages in on a regular and irregular basis guarantees that your company has enough general liability coverage.
Your General Liability Class Code
Some insurance companies may even categorize enterprises using their own proprietary codes.
The categorization should be based on what your company’s principal business offering is on a regular basis. So, although an accountant may offer payroll services in addition to their core accounting responsibilities, their primary activity will be noted.
What Happens If My Business Model Changes?
It is critical to tell your insurance provider if your principal business operations change so that they may underwrite your policy and ensure you have the appropriate coverage. If a carpenter (SIC class code 1751) obtains a general contractor’s license (SIC class code 1521) and grows their firm, their class codes will no longer show them as a carpenter. Based on the new class code 1521, the insurance provider will alter the policy and prices. The difference in risk between a general contractor and a carpenter is reflected in this adjustment.
When it comes time to file a claim, failure to inform the insurance company might cause issues. If the insurance company is ignorant of what you do as a principal employment obligation, it may refuse your claim on the grounds that you misrepresented your company to them. Check your declarations page to see what class your company is listed under to make sure you’re appropriately insured.
What Effect Does General Liability Class Codes Have on Your Premium?
Premiums are calculated based on risk. Your premium will be greater if your industry or employment has a higher risk, and vice versa. An accountant, for example, sits at a desk all day in an office with little dangers, but a general contractor is exposed to tools, supplies, and equipment on every worksite.
It’s better to have safety systems in place and keep claims low to lower your rates. Those who have never filed a claim may be eligible for savings from insurance companies. Anything you can do to lower risk will help you save money on insurance.
Conclusion
Insurance companies use class codes to categorize risk based on industry responsibilities and dangers. To ensure that your most common business processes are identifiable, determine your class code. You may be overpaying if your insurance company has misclassified your business.
Frequently Asked Questions
How do I find a general liability class code?
In order to find the general liability class code, you would have to look up your zip code on a website such as https://www.usps.com/ship-tracking/. Once there is an image of your destination, click on the Ship Tracking tab and then choose View Ship Location.
What is a class code for insurance?
A class code is a letter, number, or word that identifies an insurance policy. It can also refer to the carrier and type of coverage.
